Welcome to the Awad Capital newsletter!
In this inaugural edition, we celebrate ten years of Awad Capital in the DIFC under the supervision of the DFSA and we reflect on the journey, the near past and the future.
When we started Awad Capital, with the vision of creating value for our clients by helping them exit their companies, few entrepreneur-owned companies were considering exits. We moved to the DIFC in March 2015, and at the time, the private sector in our key area of focus, which is the GCC, was dominated by generational family businesses, and government participation in the economy was significantly larger than it is today.
The last ten years have seen remarkable growth in the private sector, with entrepreneurs, both expatriate and locals, building more exciting and profitable businesses. These businesses are attractive acquisition or investment targets to larger groups in and outside of the region, as well as the regional and international private equity (“PE”) community. The decision to sell a business is very personal for founders and, as the private equity sector grows, PE and VC funds are also natural sellers of businesses. This means an increasing number of mandates for our sell-side practice, which remains the majority of our activity. In parallel, we built a high-profile buy-side advisory practice working with multiple listed companies in the region, Europe and Asia, as well as leading family groups. And growth capital financing was also a natural extension of our sell-side M&A practice.
Over these ten years, along with the regional business and financial community, we have overcome numerous challenges. These included multiple regional geopolitical incidents, fluctuating oil prices between $100 and $40, the Abraaj bankruptcy in 2018, as well as numerous other corporate governance scandals that tainted the region and of course, the global disruptions caused by the COVID-19 pandemic.
This year will also be remembered by a cocktail of regional and international geopolitical uncertainty, financial market volatility and sharp drops in oil prices. And yet it is a record year for us in terms of new clients, which will lead to an ongoing increase in the number of transactions that we close, across sectors. For this, we are grateful for the support and loyalty of our clients and friends across financial institutions, professional services and the broader ecosystem. Indeed, the majority of our new clients are coming via referrals and introductions from other investment banks, the wealth management industry, professional services and the broader communities we are a part of. And none of this would have been possible without the loyalty and dedication of the Awad Capital team members. The six most senior members of our team have now committed the largest part of their careers to Awad Capital. In parallel, the Awad Capital Analyst program is producing talented and experienced young professionals who are prospering both with us and across the rest of the financial services ecosystem, including banks, funds and SWFs.
Looking ahead, the Gulf region in general and the UAE in particular are extremely well positioned for continued growth as well as weathering global uncertainties. The ongoing regulatory improvements to the business and capital markets frameworks present positive tailwinds locally. From a macro perspective, a likely softer USD trend makes our markets more attractive investment destinations, given the peg of the regional currencies to the USD. Lower currencies make regional companies more attractive as targets, just like they make real estate and tourism more affordable. And with oil at a multi-year low, we are likely to see more upside for the regional economies from oil prices going forward.
We expect the recent positive developments in the IPO markets to continue, with a recovery in the Saudi stock market providing further tailwinds. Broadly speaking, emerging market stock markets are expected to outperform developed markets thanks to the combination of lower interest rates and a lower USD. This should also benefit the region. In terms of the private markets, we are very happy to see a steady flow of international private equity and private credit firms setting up in the region. These firms are giving us a clearly stated intention to deploy capital in the region, which is a positive change relative to the many years where international asset managers were only looking at the region as a source of capital, with regional deals being the exception rather than the rule.
In terms of the regional private markets, we see a slow but steady rebuilding of the private equity market, with some top managers successfully raising new funds. Still, too many talented teams and individuals are unable to raise blind pool funds and are resorting to the deal-by-deal approach. In the VC space, capital continues to be abundant for early-stage deals, with numerous funds being supported by Sovereign capital, which is committed to boosting the innovation ecosystem. However, we do see an untapped opportunity in the growth equity stage, with transactions that are too small for private equity and too late stage for the VCs, finding it difficult to get funded. Another market opportunity is in the secondary market for venture capital stakes, where a multitude of early-stage investors are looking to divest their stakes, with not enough secondaries-dedicated funds being available to take the other side.
As we look towards the next decade, we are full of optimism and confidence, fortified by the experience acquired across multiple market cycles. We see the regional private sector growing and thriving, supported by local and international talent and capital. And we look forward to contributing to this growth, supporting our clients, and expanding alongside the ecosystem we are proud to serve.